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May 18, 1999 RECOMMENDATION: BUY
Medarex, Inc. (NASDAQ: MEDX)
Pure Play in Growing Antibody Market; Unique Base Services Business, Broad Clinical Pipeline, Strong Corporate Partners; Initiating with BUY Recommendation
Market Data:
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MEDX Corporate Information:
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Summary Investment Considerations
Medarex, Inc. (MEDX) is a biopharmaceutical company that we believe represents a unique, risk-reduced biotechnology investment opportunity. MEDX has a proprietary human antibody services business based on its HuMAb-Mouse system, seven antibody-based products currently in clinical trials, a long list of major corporate partners (with the potential for many additional collaborations), and a strong financial position. We are initiating coverage of MEDX with a BUY rating.
MEDX’s business is focused exclusively on antibodies, the proteins produced by the body to fight against very specific foreign entities (antigens) and diseases. The majority of therapeutic antibodies currently on the market and in clinical development are either mouse-based (murine) or humanized animal antibodies. Obvious problems arise when murine antibodies are used, as the therapeutics are very often identified as foreign and attacked or rejected by the body. Likewise, the process of humanizing animal antibodies can result in attack or rejection and can be a time-consuming and costly process to perfect. In addition, the strength with which these antibodies bind to their target is often weakened by the humanizing process. Through the 1997 acquisition of GenPharm, MEDX gained the ability to produce fully human antibodies with very high binding affinity in its HuMAb-Mouse system (simply, a mouse with a human immune system). MEDX has since developed a human antibody services business, whereby partners can license the HuMAb-Mouse technology for themselves, can employ MEDX to produce antibodies on their behalf and/or can contract for manufacturing and scale-up of antibody production. MEDX, in-house and through corporate collaborations, has also developed a broad pipeline of antibody-based therapeutics and technologies focused in the areas of cancer, autoimmune diseases and other large therapeutic markets. This technology includes its Bispecific Antibodies, that allows for the simultaneous binding to killer cells and targeted antigens, immunoconjugates, where antibodies are bound to toxic agents, and straight monoclonal antibodies.
I. Broad Technology Base — Short-Term Licensing Revenue/Long-Term Product Royalty Stream
- HuMAb-Mouse Services Business: MEDX has 11 ongoing partnerships including Bristol-Myers Squibb, Novartis, Schering AG, Centocor and Immunex. We expect MEDX to expand these relationships (as recently announced with Schering AG) and add new partners. Each partnership should yield roughly $500,000 in upfront license fees, and an additional $1-2 million in milestone payments per antibody developed, upon commencement of Phase I trials.
- Seven Products in Human Clinical Trials: MEDX currently has four products in Phase II trials, two for cancer, one for AML and one for ITP–we expect one cancer product, MDX 210 to enter Phase III by the end of 1999; two products are now in Phase I trials, one for rheumatoid arthritis and autoimmune diseases and one for cancer; one product in Phase III to treat secondary cataracts is currently stalled, pending analysis of adverse events.
II. Strong Corporate Partnerships — Additional Collaborations Expected in Near Future
- Throughout 1999, we expect a steady flow of announcements from MEDX surrounding the partnering of its HuMAb-Mouse technology.
- MEDX is currently in discussions to partner MDX 210, expected to enter Phase III trials this year. We believe that MEDX will be able to partner this product and others in early-stage and preclinical development in the near future.
III. Compelling Valuation at Current Levels — BUY Recommendation
- With more than $30 million in cash and equivalents, a relatively low cash burn rate and an expected flow of positive news events related to clinical trials and additional partnerships, we believe MEDX stock to be undervalued and recommend purchase for those investors tolerant of the risks associated with small-cap equity investments.
Risk Considerations
This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of MEDX. For a complete description of risks and uncertainties to MEDX’s business, see the "Risk Factors" section in MEDX’s SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:
- Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
- Business risk: MEDX has limited experience in the manufacturing, marketing, and the distribution of pharmaceutical products. Many of its products are in the early stages of development. Additionally, MEDX intends to license rights to its products to other companies. There can be no assurance that these licensing agreements will be completed, or that the market will accept any products under development.
- Regulatory risk: There is no guarantee that MEDX’s products will be approved by the US FDA or international regulatory bodies for marketing in the US or abroad.
- Competitive risk: The pharmaceutical industry and the market for antibodies is extremely competitive, in particular because of its large market potential. Many companies are developing products for markets that are targeted by MEDX.
Sources for Additional Information
The following are website addresses offering related information, and links to other sources of information.
www.medarex.com MEDX’s corporate website
www.SmallCapsOnline.com SmallCaps Online’s site for company information and research
www.FDA.gov US Food and Drug Administration homepage
www.sec.gov US Securities and Exchange Commission, with links to EDGAR filings
www.cancer.org American Cancer Society
The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC has performed investment banking, consulting or other services for MEDX and may solicit investment banking, consulting or other business from any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.